Full text: Taxation of foundations in Europe

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The currently applicable inheritance tax law distinguishes between 3 inheritance tax classes; 
tax class I is the most favourable, tax class III the least favourable. 
 
Degree of relationship 
Tax 
class 
Tax allow-
ance 
Spouses I 307,000
Children, step children, 
children of deceased children 
I 205,000
Grandchildren, parents and grandparents (in the event of inheritance)  I 51,200
Parents, grandparents (except in the event of inheritance), sibling, 
nephews, nieces, step-parents, parents-in-law/children-in-law, divorced 
spouses 
II 10,300
Domestic partners III 5,200
Other III 5,200
 
Furthermore, in individual cases, other exemptions may apply. However, every 30 years, the 
foundation is subject to notional inheritance taxation which offsets any tax advantages it may 
have benefited from. Loopholes for creative taxpayers are very limited; these may establish 
several family foundations to optimise tax allowances. 
Real estate transfer tax may be due on the transfer of real estate. In most cases, however, 
family foundations are set up without consideration and therefore not subject to real estate 
transfer tax.  
? At the level of the founder 
For founders, hidden reserves may be revealed upon withdrawing of assets, which would 
have consequences with regard to earnings tax. 
? Regular Tax Treatment of the Foundation 
The income of private foundations is subject to the full corporate tax rate of 15% and the 
solidarity surcharge of 5.5% of the corporate tax. Moreover, notional inheritance taxation on 
family foundations takes place every 30 years in order to ensure that the foundation assets 
are not parked for generations without inheritance tax being levied on them. 
Payments to beneficiaries as well as the deduction of the substitute inheritance tax (Erber-
satzsteuer) do not reduce the corporate tax assessment base. 
Taxation of Payments to Beneficiaries and upon liquidation 
? At the level of Beneficiaries 
Payments by the family foundation to the beneficiaries are subject to personal income taxa-
tion as income from capital. As part of the corporate tax reform 2008, the half-income tax rule
        

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